Going Into Earnings, Is Nvidia Stock a Buy, a Sell, or Fairly Valued?

Nvidia is set to release its fiscal second-quarter earnings report on Aug. 27. Here’s Morningstar’s take on what to look for in Nvidia’s earnings and stock.

Key Morningstar Metrics for Nvidia

• Fair Value Estimate: $170.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Very High

Earnings Release Date

• Wednesday, Aug. 27, after the close of trading

What to Watch for in Nvidia’s Q2 Earnings

China, tariffs and geopolitics are once again at the forefront: A quarter ago, Nvidia was forced to write off its H20 AI chip inventory targeted for China. Today, the firm can ship H20s there after all, although the timing of the export license remains unclear, and it may need to essentially pay a 15% tax to the US government on these sales to receive approval. We hope to learn more about all aspects of Nvidia’s China business—which products will be shipped into China and when, and whether there will be excess costs associated with such shipments.

Last quarter, large deals with Saudi Arabia and the United Arab Emirates fueled further optimism for AI expansion. We’ll seek to learn more about Nvidia’s prospects in sovereign AI this quarter.

Supply and demand: We still see many signs that AI demand is exceeding supply, and we hope to better understand where the supply chain sits in terms of expansion. Even with the China concerns a quarter ago, Nvidia’s supply appeared to ramp up at a modestly faster rate than what we were expecting, and we’d like to see further momentum on this front.

We anticipate that investors will still seek a beat-and-raise quarter. Nvidia’s stock has rallied nicely in recent months, both because of the supply expansion to satisfy demand in the United States and Europe and the reinstitution of H20 sales into China.

Nvidia remains on a healthy streak of reporting results ahead of its quarterly guidance while providing guidance for the upcoming quarter ahead of FactSet consensus estimates, although such “beats” are less impressive than at the dawn of AI a couple of years ago.

Nvidia has the best view of AI, so we’ll seek technological insights: If AI were a city, Nvidia CEO Jensen Huang would be mayor. We think he has the best view of where AI is headed, both in the short and long terms, so we’d like to learn more about emerging model techniques and agentic AI applications.

Fair Value Estimate for Nvidia

With its 3-star rating, we believe Nvidia’s stock is fairly valued compared with our long-term fair value estimate of $170 per share. The main driver of the firm’s tremendous data center growth is an ongoing increase in capital expenditures in DC at leading enterprise and cloud computing customers. We think Nvidia may face an inventory correction or a pause in AI demand at some point, so we model only 2% growth in fiscal 2029. Excluding this one-year blip, we anticipate average annual DC growth of 10%-12% thereafter and consider this a reasonable long-term growth rate as AI matures.

Toward the end of this decade, we think cloud computing revenue at the hyperscalers can grow at a low-teens rate while capital expenditures as a percentage of revenue remains consistent. We thus model Nvidia’s revenue growth to be on par with those rates. Nvidia achieved 126% revenue growth in fiscal 2024 and 114% growth in fiscal 2025. While these percentages will represent peak growth rates, we still anticipate robust growth in the years ahead. We model a three-year CAGR of 34% and midcycle growth in the low teens thereafter.

Read more about Nvidia’s fair value estimate.

Economic Moat Rating

We assign Nvidia a wide economic moat, thanks to intangible assets around its graphics processing units and, increasingly, switching costs around its proprietary software, such as its Cuda platform for AI tools, which enables developers to use Nvidia’s GPUs to build AI models.

Nvidia was an early leader and designer of GPUs, and it has emerged as the clear market share leader in discrete GPUs. We attribute the firm’s leadership to intangible assets associated with GPU design, as well as the associated software, frameworks, and tools required by developers to work with these GPUs. Introductions such as ray-tracing technology and the use of AI tensor cores in gaming applications are signs that Nvidia has not lost its GPU leadership in any way.

Beyond Nvidia’s AI prowess today, we think the company is making the proper moves to widen its moat even further. The company’s software efforts with Cuda remain impressive, while Nvidia expanded into networking solutions, most notably with its acquisition of Mellanox for InfiniBand, and more recently with its Spectrum Ethernet products.

Read more about Nvidia’s economic moat.

Financial Strength

Nvidia is in outstanding financial health. As of April 2025, the company held $53.7 billion in cash and investments, as compared with $8.5 billion in short-term and long-term debt. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry. During downturns, this provides them with a cushion and flexibility to continue investing in research and development, which is necessary to maintain their competitive and technology positions. Nvidia’s dividend is virtually immaterial relative to its financial health and forward prospects, and most of the firm’s distribution to shareholders comes in the form of stock buybacks.

Read more about Nvidia’s financial strength.

Risk and Uncertainty

We assign Nvidia an Uncertainty Rating of Very High, due to the nascency of the AI market. In our view, the firm’s valuation will be tied to its ability to grow within AI, for better or worse. Nvidia is an industry leader in GPUs used in AI model training, while carving out a good portion of demand for chips used in AI inference workloads (which involves running a model to make a prediction or output).

We see a host of tech leaders vying for Nvidia’s leading AI position. We think it is inevitable that leading hyperscale vendors, such as Amazon’s AMZN AWS, Microsoft MFST, Google GOOGL, and Meta Platforms META, will seek to reduce their reliance on Nvidia and diversify their semiconductor and software supplier base, including the development of in-house solutions. Google’s TPUs and Amazon’s Trainium and Inferentia chips were designed with AI workloads in mind, while Microsoft and Meta have announced semiconductor design plans. Among existing semis vendors, AMD is quickly expanding its GPU lineup to serve these cloud leaders.

We also foresee geopolitical risk and uncertainty, most notably with US restrictions that have prevented Nvidia, at various times, from selling its AI products into China. We don’t foresee a recovery in AI sales into China, and we can’t rule out restrictions on Nvidia selling into certain other nations either.

Read more about Nvidia’s risk and uncertainty.

NVDA Bulls Say

• Nvidia’s GPUs offer industry-leading parallel processing, which was historically needed in PC gaming applications, but has expanded into crypto mining, AI, and perhaps future applications too.
• Nvidia’s data center GPUs and Cuda software platform have established the company as the dominant vendor for AI model training, which is a use case that should rise exponentially in the years ahead.
• Nvidia is expanding nicely within AI. It’s not just supplying industry-leading GPUs, but also moving into networking, software, and services.

NVDA Bears Say

• Nvidia is a leading AI chip vendor, but other powerful chipmakers and tech titans are focused on in-house chip development.
• Although Cuda is a leader in AI training software and tools, leading cloud vendors would likely prefer to see greater competition in this space and may shift to alternative open-source tools if they were to arise.
• Geopolitics have entered the AI space, most notably limiting Nvidia’s AI opportunities in China. We are skeptical that Nvidia’s China AI business will be allowed to recover, regardless of the US administration.

This article was compiled by Isela Meraz.